How Policies Can Have Unintended Consequences in Washington, D.C.

Even well-intended and well-analyzed policies from Washington, D.C., can bring about unintended consequences. An action meant to bring about one set of reactions can inadvertently create incentives that lead to another set of unforeseen costs and adverse effects.

For example, when the U.S. auto industry began to experience competition from cheaper, more fuel-efficient Japanese cars, the industry lobbied U.S. policymakers to help it remain competitive. Its efforts brought about the 1981 voluntary export restraint (VER) agreement with Japan, which limited Japanese auto exports to 1.68 million cars annually.

Though the agreement did bring fewer Japanese cars into the United States, it also incentivized the Japanese to export bigger and more expensive cars. This paved the way for Japanese luxury brands such as Lexus, Acura, and Infiniti, which soon outcompeted American luxury brands. In addition, the Japanese auto industry began establishing factories in the United States that produced Japanese-brand cars, defeating the purpose of the VER.

A more recent example is that of U.S. government subsidies for biofuel production. Though they’re intended to reduce greenhouse gas emissions, critics of the subsidies say that ethanol, made mainly from corn, has diverted grain (and associated land use) from food to fuel.

Subsidized ethanol subsequently helps drive up the price of grain, which may be good for farmers and rural communities but bad for city dwellers who must pay more for the food they eat.

These examples show that even the most careful and deliberate policymaker may not be able to anticipate the full effects of a policy’s implementation. This makes the case even greater for public participation, open debate, and full transparency in the policymaking process.

The more information and greater the variety of stakeholder input policymakers have, the more likely they are to think of all the possible variables and outcomes that could result from a policy. A system that allows interest groups with different perspectives to voice concerns throughout each step of a law’s implementation can help avoid the most harmful unintentional consequences when implementing a policy.